Financial Intermediation Review

Richard MorrisonDavid Jack

Sandy StewartEuan Smith

Financial Intermediation in the Standard Industrial Classification

65 Financial Intermediation, Except Insurance and Pension Funding65.1 Monetary intermediation

65.11 Central banking65.12 Other monetary intermediation65.12/1 Banks65.12/2 Building societies

65.2 Other financial intermediation66 Insurance and Pension Funding, Except

Compulsory Social Security67 Activities Auxiliary to Financial Intermediation

Current Banking Measures

• UK (ONS) use aggregate data for whole of UK from Bank of England Sources

• Producing a fully tartan measure is not straightforward

• Currently Scottish Estimates use fees and commission and net interest measures from the CSCB and augment with some Bank of England data for the rest.

Aim

• Build a robust model that uses as much data as we can lay our hands on.– Which can also inform SNAP?

• Three main initiatives– Carry on with CSCB relationship

• But take over their data collection to allow us more resolution in our estimation

– Initiate new survey of Non CSCB banks– Exploit ONS initiative on Welsh Index of

Finance

CSCB Relationship

• Committee of Scottish Clearing Bankers aggregate two variables from their four members

• We will now take over their collection and provide them with their aggregation and use the raw data in our model– They will also provide raw data back to 2007.

New Survey

• We have now written to all Banks and Building Societies who have substantial operations in Scotland

• We requested a basic P&L return – modelled on the statutory Profit and Loss collection by BoE

• Developed the form with advice from the industry and the Bank of England

ONS/BoE Methodology

• The ONS have been developing a “Welsh Index of Finance” which has a number of strands.

• Includes banking estimates with methodology which is consistent for all NUTS regions

• So there is a Scottish Series

ONS/BoE MethodologyThe basic underlying methodology is:• A regional profile is provided to Bank of England

– Based on employment share

• Fees and Loan Stock variables are compiled– For both Banks and Building Societies

• The fees data deflated using the Average Earnings Index (AEI) for workers in the finance industry.

• Loan Stock Variables are multiplied by aggregate margin rates calculated from quarterly data from the BoE. This provides FISIM

• FISIM estimates deflated using an implied deflator obtained from the UK GDP(O) system

Mash Up

• Our model will use the Scottish estimates from the BoE/ONS methodology, adjusted where we have primary data.

On Aggregation

• Historically we have published “Banking” as an individual GVA series

• This is not consistent with UK (or most other national) GDP estimates or the SIC

• The British Bankers Association recommend not publishing at this level

• Bank of England will not allow us to publish at this level if using their estimates

• CSCB have accepted that Financial Services will be the lowest level disaggregation

• We will no longer separately identify Banking from 2010Q2 onwards